A to Z of teenage finance- financial terms every parent should teach their teens

Parents Aug 27, 2020

A healthy knowledge of finance-related matters leads to secure savings at an early age. It also guarantees a stable footing in monetary matters.

Teens do not get the required exposure to the intricacies of finance. Parents tend to shield their kids from money-related matters to not burden them. This, however, leads to multiple issues later in life as these kids face financial troubles and do not know any way out of them.

Your kids will be more equipped to handle finance and the issues related to them as adults if they are given the right information. Finance is not just an area of interest or a career path; it is the necessary knowledge to handle your life properly. Thus, teaching your teens about finance and terms associated with it become essential.

Read more about Things You Must Know as a Parent of a GenZ Teen to help you connect with your child better!

Below mentioned are a few essential financial terms that every teenager should know and apply in their lives:

Saving

“Little drops of water, little grains of sand, make the mighty ocean, and the pleasant land” by Julia A.F. Carney still applies in today’s world.

Teach your child the value and power of savings. Fortunes can only be made if the expenditure is controlled. They should understand the benefits that come with savings. Help them with the fundamentals and encourage them to practice it in real life. It is believed that savings are not what is left after spending, but you should spend what is left after savings. Start with small exercises that will make your child understand the need for savings.

Read more about Savings for teens

Investment

Ask your kids if they would give up a portion of their pocket money now, if they could get double the amount in the future. You would most likely get a ‘yes’!

Credit Score

Maintaining a good credit score is extremely important for any individual. You need to teach your child the way credit score gets generated. There are agencies responsible for credit scores, and they track your transactions historically to generate the score. If you have the habit of clearing dues on time, your score will be high. Your children should be aware of the credit score system before they start using credit cards. Credit cards have large limits, and often users end up using more than required. So, instead of using credit cards, teenagers can try FamPay prepaid cards. They are hassle-free and can be used in both online and offline purchases. As the card works like a debit card, your child can only use the limit that you have transferred. This will help you to keep a check on their expenditure, too!

Loans

Teenagers are often accustomed to the concept of loans. They share things and return when the purpose is over. You, as a parent, should start to strengthen the concept. Teach your child the way it works in the real world. Explain to them the need to take a loan. This concept building will help them build a proper mind-set, and they will be known from an early age that loan needs to be repaid with interest.

Risk

Every investment has a certain amount of risk inculcated in them. Teenagers need to understand the relationship between risk and return. Higher return generating financial assets comes with higher risks. A financial asset shouldn’t be purchased based only on its return potential, the underlying risk must be measured and matched with the risk-taking ability of the buyer. You must teach your child the importance of judging a personal risk threshold. Once your child is clear about its risk-taking ability, then they can make an informed investment decision.

Taxes

While taxes are not the best part of being an adult, try to give a positive notion about it to your kids. Talk to them about the government, why it exists and how it collects money to look after the needs of the country.

Stock Market

“The Stock Market is a device for transferring money from the impatient to the patient”, by Warren Buffet.

Interest earned on bank deposits is getting reduced daily. Buying stocks helps the stockholder to be the owner of the company. Historically, it is seen that return from stocks has been higher than the return from bank deposits. It is really important for you as a parent to introduce your child with the basics of the stock market. Investment in stocks also helps in the diversification of your portfolio. These concepts are extremely important for the accumulation of future wealth and should be taught to your child.

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